Investment risk is measured by the standard deviation of an investment's return. Professional investment managers define investment risk as the uncertainty that the expected return will be achieved. The greater the range of possible returns associated with an investment, the higher the risk.

Let's assume, you are thinking of buying a particular mutual fund that has an annualized standard deviation of 20 (e.g. high volatility). What does this really mean?

For simplicity, assume the expected return is 10%. You can expect the following possible returns.

Possible Outcome of an Investment with a Standard Deviation Equal to 20

There are a few important caveats to this prediction. First, it assumes the fund will have the same average return and volatility in the future as it had in the past. And second, it assumes that the investment's return is "normal", in other words, half the returns will be greater than the average, and half the returns will be less than the average.

To learn more about standard deviation and measuring investment risk, visit the Key Investment Principles section of our website, assessable by clicking on E-fficient Investor on our home page.

Yours truly,

Tactical Asset Management, Inc.
phone: (306) 757-2121
fax: (306) 347-3655
e-mail: inquiry@tacticalassetmgmt.com
website: www.tacticalassetmgmt.com